Five Critical Questions Divorcing Women Need to Answer Before Deciding to Keep the House

Throughout my years as a Divorce Financial Strategist, I’ve learned that my clients tend to fall into three separate groups when we discuss their attitudes towards their marital residence. The first group sees the house as not just a piece of real estate, but as a home filled with family history and sentimental value. The second group feels quite differently. They consider the house the center of painful memories and/or the root of financial trouble. The last group adopts a more matter-of-fact approach, seeing the marital residence as neither overwhelmingly positive nor negative. To them, the house is an asset –like many others --to be negotiated in the divorce process.

Regardless of how you view it, rest assured of one thing: Your marital residence is likely to figure prominently in your divorce proceedings. Often, it’s the biggest asset a couple owns together, and usually, it comes “ fully furnished” with all sorts of emotional trappings, as well. Part of our job at Bedrock Divorce Advisors is to complete the financial analyses needed to help a woman understand if she can afford to own the house, and if so, for how long. For example, if you’re going through a divorce and think you would like to keep your martial residence, consider the following questions:

Why are you interested in keeping the house? There are many practical and fair reasons to want to keep the house. Perhaps you’re raising your children in this house, and it’s near both school and work. Or, it could be a family home passed down from generation to generation. Just be sure that your list of reasons to keep the houseisn’t dominated by purely emotional ones. Remember: In order to reach a divorce settlement agreement that puts you on solid financial footing, you’ll need to Think Financially, Not Emotionally®. Also, please keep this in mind: When children are involved, the parent who is awarded custody often stands the best chance of being awarded the house, as well. Most courts want to minimize disruptions to children and family routines, if at all possible.

Can you afford to keep the house? Whatever your income level, this is a critically important question. House-related expenses can significantly impact your budget once you are single, so make sure you carefully consider all the costs associated with home ownership: mortgage payments, real estate taxes, utility bills, maintenance, repairs, landscaping and upkeep, etc. Even affluent women who own marital residences worth millions of dollars, mortgage-free, will have to sell their houses at some point. Why? Because it’s just not sensible for them to keep so much cash tied up in these relatively illiquid investments (which, in this economy, may not increase in value for many years).

Have you fully considered the true worth of the house vs. other assets? Not all assets that are valued the same are actually worth the same. Here’s an example to illustrate my point: Let’s say you’re trying to decide whether to keep a $600,000 bank account or a $600,000 house that’s completely paid off. You really love the house, and you’re leaning in that direction. Great idea? Maybe. But, you need to carefully assess how the house will impact your bottom line –both now and years down the road. Even mortgage-free home ownership involves expenses, such as real estate taxes that need to be paid every year, upkeep and maintenance, fuel costs, etc. In addition, when you eventually sell your home you may be hit with a big capital gains tax bill. Let’s assume you bought the home for $200,000, and it’s now worth $600,000. Your capital gain is $400,000. Subtract your $250,000 capital gains exclusion as a single person, and you’ll have to pay capital gains tax on $150,000. At the current capital gains tax rate of 15 percent, that amounts to a $22,500 tax bill! (And chances are pretty good that those tax rates will increase in the near future.)

Once you complete this type of analysis, the cash may look like a much better option than the house.

What other living options are available to you? It’s only natural to feel a sentimental attachment to the place where you live. But don’t become so entrenched that you fail to recognize viable alternatives. Perhaps it’s a good idea to down-size. Or maybe, when it comes right down to it, you would actually prefer a different neighborhood? Could a new home give you that feeling of a clean slate? Odds are, even if you weren’t divorcing, you would eventually move from your current residence. Though it may not seem like it right now, there are lots of different places you can call “home.”

Could the proceeds of selling your house create new opportunities and allowances? Selling or downsizing could open new doors for you and your family. These new proceeds could be turned into an investment, a retirement fund, reserves for your children’s future education, or simply extra financial security to depend on if another curveball comes your way. In the end, knowing these new options are now true possibilities may be more valuable than the house, despite attached sentimental value.

Maintaining emotional distance when it comes to negotiating your marital house won’t necessarily be easy. But if you can successfully so do, you’ll put yourself in a better position to strategically manage your assets and develop a comprehensive plan for financial stability and security in the future.

Jeffrey A. Landers, CDFA™ is a Divorce Financial Strategist™ and the founder of Bedrock Divorce Advisors, LLC (http://www.BedrockDivorce.com) a firm which exclusively advises affluent women throughout the United States before, during and after divorce. He assists women and their divorce attorneys with deciding on the most advantageous way to divide marital assets and enable them to negotiate more favorable settlements, especially when there are complicated financial and tax issues.Jeff also advises happily married women who have seen their friends blindsided by a divorce initiated by their husbands and wonder (wisely) how financially vulnerable they’d be in that situation. Jeff developed the nation’s first Just in Case(TM): Secure Your Financial Future,a one-hour program, which quickly shows married women how to be prepared in the event of a future divorce with immediate, practical steps. He can be reached at Landers@BedrockDivorce.com. All articles/blog posts are for informational purposes only, and do not constitute legal advice. If you require legal advice, retain a lawyer licensed in your jurisdiction. The opinions expressed are solely those of the author, who is not an attorney. Follow Jeffrey A. Landers on Twitter: http://www.twitter.com/Bedrock_Divorce